Is Aegean Airlines S.A.'s (ATH:AEGN) Latest Stock Performance A Reflection Of Its Financial Health?

Aegean Airlines' (ATH:AEGN) stock is up by a considerable 15% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Aegean Airlines' ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Aegean Airlines is:

30% = €144m ÷ €482m (Based on the trailing twelve months to March 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.30 in profit.

Check out our latest analysis for Aegean Airlines

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Aegean Airlines' Earnings Growth And 30% ROE

Firstly, we acknowledge that Aegean Airlines has a significantly high ROE. Additionally, a comparison with the average industry ROE of 28% also portrays the company's ROE in a good light. Given the circumstances, the significant 59% net income growth seen by Aegean Airlines over the last five years is not surprising.

As a next step, we compared Aegean Airlines' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 59% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for AEGN? You can find out in our latest intrinsic value infographic research report.

Is Aegean Airlines Efficiently Re-investing Its Profits?

Aegean Airlines has a three-year median payout ratio of 44% (where it is retaining 56% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Aegean Airlines is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Aegean Airlines is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 60% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.

Summary

Overall, we are quite pleased with Aegean Airlines' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.